On May 13, 2019 Takeda Pharmaceutical Company Limited (TOKYO:4502)(NYSE:TAK): FY2018 Full Year Results (Press release, Takeda, MAY 13, 2019, View Source [SID1234536236]).
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Legacy Takeda Underlying Revenue +5.3%; Consolidated reported revenue +18.5%
Underlying Revenue growth for Legacy Takeda was solid at +5.3%, with significant contributions from key growth products such as ENTYVIO (+34.8%) and NINLARO (+36.1%).
Consolidated reported revenue increased +18.5% to 2,097.2 billion yen. This was mainly due to the inclusion of Legacy Shire’s results from January 8, 2019, which was offset by the one-time negative impact from applying Takeda’s distribution channel policies to Legacy Shire products.
Legacy Takeda Underlying Core Earnings margin expanded +540 basis points
Legacy Takeda underlying Core Earnings grew +38.7%, with Opex discipline driving three fourths of the +540bps margin expansion. Legacy Takeda’s underlying Core Earnings margin has now expanded +960bps based on simple addition of gains in the last two years, driven by key growth products and execution of the Global Opex Initiative.
Legacy Takeda operating profit grew +70.3% mainly driven by business momentum. Large one-time gains in FY2017 from the divestiture of Wako Pure Chemical and the transfer of additional products to the Teva JV were matched by increased gains on sales of real estate and the divestitures of Multilab and Techpool in FY2018.
Consolidated reported operating profit decreased -15.2% to 205.0 billion yen, and consolidated reported EPS declined -52.6% to 113 yen per share, mainly impacted by significant non-cash purchase accounting expenses. The strong performance in Legacy Takeda reported operating profit entirely absorbed Shire acquisition-related costs incurred in FY2018.
Innovative R&D engine delivered important pipeline milestones
ENTYVIO demonstrated superior efficacy versus adalimumab in ulcerative colitis head-to-head VARSITY study4. Regulatory applications for a subcutaneous formulation filed in the U.S. for ulcerative colitis and Europe for ulcerative colitis and Crohn’s disease.5
Approvals in FY2018 for TAKHZYRO in the U.S. and Europe as well as ALUNBRIG in Europe. Important label expansions for ADCETRIS to include previously untreated Hodgkin lymphoma approved in Japan and Europe, as well as TRINTELLIX in the U.S. to include data on speed of processing and Treatment Emergent Sexual Dysfunction.
Innovative pipeline has delivered 15 New Molecular Entity clinical stage-ups since April 2018.
44 new collaborations with biotech and academia in FY2018, and announced 3 leading-edge cell-therapy partnerships.
Disposing non-core assets to generate cash and focus the business
Consolidated Free Cash Flow +4.6% to 378.1 billion yen, including 200.9 billion yen from the sale of real estate, marketable securities, and non-core businesses Techpool and Multilab.
On May 8, 2019, Takeda announced agreements to divest XIIDRA to Novartis for $3.4 billion upfront in cash and up to an additional $1.9 billion in potential milestones, and TACHOSIL to Ethicon for €358 million upfront with a long-term Manufacturing Services Agreement.6
Takeda intends to use proceeds from the disposal of non-core assets to reduce debt and accelerate deleveraging toward its target of 2.0x net debt/adjusted EBITDA in 3 to 5 years.
Christophe Weber, President and Chief Executive Officer of Takeda, commented:
"Fiscal 2018 was an important year in the history of Takeda as we completed the acquisition of Shire to create a competitive, values-based, R&D-driven global biopharmaceutical leader. I am delighted to say that throughout the year, while we have focused on planning and executing the integration, we have also maintained strong business momentum, as demonstrated by our excellent financial results.
The integration of Shire is progressing as planned, aligned with Takeda’s values and culture. We have also identified opportunities to realize greater cost synergies, and already have made progress on our divestment strategy for non-core assets.
Looking ahead, I believe we have a strong and resilient foundation for the future growth of the business. We are focused on our five key business areas of GI, Rare Diseases, Plasma-Derived Therapies, Oncology and Neuroscience, and our revenue over the medium term will be driven by a balanced portfolio including 14 global brands. Our innovative pipeline is also delivering, as shown by the 15 clinical stage-ups over the past year, and we are committed to executing towards our margin expansion and deleveraging targets.
With our business area focus, R&D engine, and financial strength, Takeda is well positioned to deliver long-term value to patients and our shareholders."
1References to "Legacy Takeda" exclude Legacy Shire financials (which have been consolidated into Takeda’s results from January 8, 2019 to March 31, 2019), costs incurred by Legacy Takeda and Legacy Shire related to the acquisition, and financial impact from purchase accounting. References to "Legacy Shire" are to the businesses acquired in Takeda’s acquisition of Shire, which was completed on January 8, 2019, and to the results of those businesses before or after the completion of the acquisition, as the context requires
2Gastroenterology (GI), Rare Diseases, Plasma-Derived Therapies, Oncology, and Neuroscience
3Entyvio, Gattex/Revestive, Alofisel, Vpriv, Elaprase, Natpara/Natpar, Adynovate, Takhzyro, HyQvia, Cuvitru, Gammagard Liquid/Kiovig, Albumin/Flexbumin, Ninlaro, Alunbrig
4Schreiber S, et al. J Crohns Colitis 2019;13(Supplement_1):S612–3 (abst OP34). [Oral presentation]
5Biologics Licensing Application in the U.S.; Marketing Authorization Line Extension Application in the EU
6Divestments of XIIDRA and TACHOSIL expected to close the second half of calendar year 2019, subject to customary closing conditions, including the satisfaction of legal, regulatory and, where applicable, local works council requirements.
FY2018 Consolidated Reported Results (April – March)
iAttributable to the owners of the company.
iiCore Earnings, which is not a measure presented in accordance with IFRS, represents net profit adjusted to exclude income tax expenses, our share of profit or loss of investments accounted for using the equity method, finance expenses and income, other operating expenses and income, amortization and impairment losses on intangible assets associated with products and other items that management believes are unrelated to our core operations, such as purchase accounting effects and transaction related costs.
iiiExcludes Legacy Shire financials (from January 8, 2019 to March 31, 2019), costs incurred by Legacy Takeda and Legacy Shire related to the acquisition, and financial impact from purchase accounting.
ivAttributable to the owners of the company.
vNumber of shares used for FY2018 EPS calculation: 784,477,109 shares (as of January 7, 2019, the day before the completion of the Shire acquisition)
viCore Earnings is not a measure presented in accordance with IFRS and represents net profit adjusted to exclude income tax expenses, our share of profit or loss of investments accounted for using the equity method, finance expenses and income, other operating expenses and income, amortization and impairment losses on intangible assets associated with products and other items that management believes are unrelated to our core operations, such as purchase accounting effects and transaction related costs.
FY2019 Full Year Guidance
FY2019 Management Guidance: Business momentum expected to largely offset significant Loss of Exclusivity headwinds
Momentum of key growth products in our 5 Key Business Areas is expected to largely offset the significant Loss of Exclusivity of VELCADE, FIRAZYR, ULORIC & other products.
Full year consolidation of Legacy Shire results, cost synergies and OPEX discipline is expected to contribute to underlying Core EPS of 350-370 yen.
Guidance
Underlying Revenue Growthvii Flat to slightly declining
Underlying Core Earnings Margin Mid-twenties %
Underlying Core EPS 350-370 yen
Annual dividend per share 180 yen
Financial assumption for VELCADE in the U.S. is for one additional non-therapeutically equivalent competitor with intravenous and subcutaneous administration launching in July 2019. If no additional competitor launches, pro-forma underlying revenue growth would be "flat to slightly increasing".
vii Constant Exchange Rate growth (applying FY2018 full year average foreign exchange rate) compared to baseline of JPY 3,300 billion (pro-forma April 2018-March 2019 combined revenue of Legacy Takeda and Legacy Shire, converted at April 2018-March 2019 average exchange rate of 111 JPY/USD)
Note: FY2019 Management Guidance does not take into consideration the recently announced divestitures of XIIDRA and TACHOSIL. However, Takeda does not expect these divestitures to have a meaningful impact on its management guidance.
Costa Saroukos, Chief Financial Officer of Takeda, stated:
"Our guidance for fiscal year 2019 reflects a significant impact from Loss of Exclusivity, without which the top-line would be growing by ~6-7 percentage points, driven by continued volume expansion of key products such as ENTYVIO, TAKHZYRO, NINLARO, and our Immunoglobulin franchise. We expect our Underlying Core Earnings margin to reach the mid-twenties in fiscal 2019, and we are targeting Underlying Core Earnings margin in the mid-thirties in the medium term, driven by continued Opex efficiencies and relentless execution against our cost synergy targets. After closing the Shire acquisition we conducted a deep-dive, bottoms-up review of the synergy opportunities, and I am pleased to say we are raising our cost synergy target from $1.4 billion to approximately $2 billion in annual recurring savings by the end of fiscal 2021.
In addition to margin improvement, we also are committed to rapid deleveraging towards our target net debt / adjusted EBITDA ratio of 2.0x in 3 to 5 years. This will be driven by strong cash flow, and accelerated deleverage from our divestitures such as the recently announced agreements to sell XIIDRA and TACHOSIL. In addition, we will continue to make focused investments in the business to support our growth drivers, and intend to maintain our well-established dividend policy of 180 yen per share annually.
Takeda has delivered against its commitments in FY2018, as exemplified in our superb margin improvement and cash generation, and we are committed to delivering against our future targets to drive significant returns for our shareholders."
FY2019 Forecast: Expecting strong increase in core earnings of +92.2%, with Net Profit excluding deal-related costs and the impact of purchase accounting growing at +17.7%
Anticipate Revenue up +57.4% vs. prior year due to inclusion of Legacy Shire’s full year results for the full year.
Expect Operating Profit and EPS to be significantly impacted by Shire acquisition-related integration costs and costs related to purchase accounting. Excluding the impact of Shire acquisition-related costs and purchase accounting, Net Profit for the year would increase +17.7% (refer to the attached appendix for details).
Anticipate Core Earnings strongly increasing +92.2% from full year Legacy Shire contribution, cost synergies and continued OPEX discipline.
For more details on Takeda’s FY2018 results and other financial information, please visit View Source